Florida tumbles from top 10 states in attracting venture capital

Florida's share of the nation's new venture capital plummeted during the third quarter, pushing the Sunshine State far down the leaderboard in the race to attract entrepreneurial investments, according a new survey.

Venture capitalists invested less than $29 million in 10 Florida companies during the July-through-August period, down 36 percent from the same quarter in 2011, according to the latest MoneyTree Report, published by PricwaterhouseCoopers and the National Venture Capital Association.

That knocked Florida out of the top 10 among U.S. states and into 22nd place — one of its poorest showings in recent years. Florida had ranked ninth in the second quarter, its first top 10 appearance since the first quarter of 2011.

Two Central Florida companies landed venture money during the quarter: XOS Digital Inc. of Lake Mary ($2 million) and ISO Group Inc. of West Melbourne ($1.2 million). Both were already multiple recipients of of venture capital and both are well-established in their fields — XOS in the sports-highlight technology business, ISO in military logistics and related services.

Money for startups and other early-stage companies, however, is in full-blown retreat, both in Florida and elsewhere, according to the MoneyTree survey, which is based on data from Thomson Reuters. That is especially bad news for Florida, which already has a hard time attracting venture capital for estabished companies, much less for startups.

"The decline in funding for seed/early-stage companies is firmly in place — we've seen a drop in dollars and deals both quarter-over-quarter and year-over-year," said Tracy T. Lefteroff, global managing partner for venture capital at PricewaterhouseCoopers. "We're seeing fewer new venture funds being raised, which means less capital is available for new investments."

Total venture investment in the U.S. fell 11 percent during the third quarter to $6.5 billion, and more than half of that money went to California companies. Through the first nine months of 2012, new venture capital nationwide totaled $20 billion, down 10 percent from the year-earlier period.

Florida has been hit harder than the nation as a whole: Through the first nine months of this year, companies in the state received $160.3 million, or 42 percent less than during the same period last year.

Central Florida has managed to buck that statewide trend: Boosted by a strong first quarter, the region's companies have attracted $60.5 million in venture funds so far this year, or 70 percent more than during the first three quarters of 2011. But the region's third-quarter total alone was down 75 percent from a year ago, raising doubts about Central Florida's ability to maintain its double-digit percentage growth.

Richard Fox, an Orlando venture-capital expert and a partner in the Astralis Group, said the region's latest numbers are cause for concern.

"When we look at the ratio of venture capital in Central Florida compared to Florida, we are usually in the 25 percent to 33 percent range," he said. "But we were way down from that in the third quarter, and that's definitely a negative indicator."

Most venture-capital firms are now avoiding investments in new and early-stage companies — a trend that could continue indefinitely, according to Fox. As a result, entrepreneurs are turning to a number of alternative, "crowd-funding" sources, from Internet-based outlets such as Kickstarter.com to more broadly organized "angel" investor groups.

"There is a strong sentiment that traditional venture capital as a business model and economic-development model is yesterday's news," Fox said. "It is just not working any more."